European infrastructure debt enters 2026 in a healthy position, with no shortage of demand for its diverse range of opportunities. Nonetheless, investors need to be alert to various risks and conduct thorough due diligence, argues Darryl Murphy.
Read this article to understand:
- Why infrastructure debt looks to be in healthy shape
- Some of the dangers investors need to be alert to
- Why there is an ongoing need to focus on credit fundamentals
European infrastructure debt markets enter 2026 with strong momentum. Record issuance last year met with strong demand as investors were once again drawn to an asset class providing stable, predictable returns, with an element of inflation protection and low correlation to traditional markets.
Last year set a new high-water mark for the European market, with €259 billion of infrastructure debt issued via 809 deals, a roughly six per cent increase on 2024 volumes. The UK market accounted for 30 per cent of the total, with 163 deals worth €78 billion, followed by Spain and Germany.1
Rising issuance was underpinned by continued strong activity in the energy transition and digital infrastructure sectors – solar (€33 billion), offshore wind (€26.5 billion), fibre (€17 billion) and data centres (€12.7 billion).2
The largest transactions illustrated the scale and breadth of the market: the Brookfield, Digital Bridge and Deutsche Telecom-owned GD Towers refinancing, the export credit-backed tranche of Sizewell C nuclear power station as part of a total £36 billion debt financing, the MasOrange and Vodafone Spanish fibre refinancing, and flagship offshore wind financings (Baltyk II & III in Poland).
The UK witnessed several notable new issues with €10.8 billion committed to offshore wind projects including in East Anglia and Inch Cape in Scotland, and €10 billion to the water industry including €5 billion to finance improvements to an aqueduct in North West England. Greenfield projects received €26 billion in total, bolstered by Sizewell C, a carbon capture and storage project in Liverpool Bay, and the various offshore wind deals.3
Investment-grade infrastructure debt delivered total returns in the range of 6-6.5 per cent in sterling and 4.25-4.75 per cent in euros last year, as spreads over underlying government debt tightened, albeit not by as much as spreads on corresponding corporate debt traded in public markets. Despite this tightening of spreads, illiquidity premia remained consistent with a long-term average of around 100 basis points (see Illiquidity premia in private debt: Q3 2025).4,5
Given recent problems with the US direct-lending market, European infrastructure debt will likely be increasingly attractive for international investors, who will be able to take comfort from the strength of the underlying assets. The sector will continue to provide a diverse range of risk/return opportunities and therefore value, especially for those able to source at scale.
Focusing on the fundamentals
However, while the market’s ability to absorb record issuance signals resilience, rising competition and structural shifts demand disciplined credit selection.
The first question for 2026 is not whether infrastructure debt remains attractive to the many investors seeking exposure to the wider private credit market – it does on a relative-value basis.
Competitive pressure from banks and US institutional capital is reinforcing the need for disciplined credit selection
Rather, it is whether investors should adjust their positions as competition intensifies. Competitive pressure from banks and US institutional capital is reinforcing the need for disciplined credit selection, especially as debt is structured in ever more complex ways. It is likely to result in an ongoing imbalance between supply and demand and may cause pricing to tighten, as witnessed in 2025 in the US private placement market for regular European issuers.
And with much of the new debt being issued by firms involved in the energy transition and digital infrastructure, investors need to be alert to various risks.
These include bottlenecks in electric grids, ongoing consolidation within the fibre sector, the risk of renewable projects being curtailed, power prices for renewable assets, and market risk in digital infrastructure. Those risks reinforce the importance of remaining focused on credit fundamentals.
Prime mover
The energy transition remains the primary engine for the flow of new deals. Offshore wind continues to scale across Europe, supported by government subsidies. As for the UK, the result of the next round of wind subsidy contracts will provide a clear indication of whether there is likely to be a step-change in the delivery of offshore wind. Financing of new solar installations also remains strong, with around €33 billion of deals in 2025.
However, the common challenge across Europe is the necessary increase in grid upgrades to accommodate renewable generation. According to the European Investment Bank, grid investment needs to double to €140 billion annually. In Britain, National Grid has unveiled plans to spend billions upgrading the country’s transmission and distribution networks.6
While most of this will be financed through regulated utility entities, the sheer scale of investment required may lead utilities to seek wider sources of capital beyond public capital markets.
A further concern for investors is localised issues impacting existing asset performance, such as the power blackout across the Iberian Peninsula last April. In the Nordic region, investors were hit by weak power prices in 2025 due to strong output from hydropower plants and increased renewable capacity.
Ongoing digitalisation
Spending on fibre networks also remains significant across Europe, although investors need to be mindful of the risk of network overbuild in those places where subscriber growth is falling. The UK market is ripe for consolidation, and although there has been more talk than action so far, 2026 could see several mergers. Meanwhile, highly leveraged firms face a challenging time, which may result in some high-profile restructurings, both in the UK and Germany.
Data centres look set to overtake fibre as one of the most active sectors across Europe
Data centres are experiencing unprecedented demand yet power availability, grid connections, and permitting constraints are now critical determinants of deliverability across Europe. While the volume of deals, at €12.7 billion, is dwarfed by that in the US, the sector looks set to overtake fibre as one of the most active sectors across Europe.
Investors may also find some attractive opportunities to invest in the UK rail industry. Several companies, including Southern, Northern and TransPennine Express, are looking to secure new rolling stock following a lull in the wake of the pandemic and the continued nationalisation of rail operators.
In search of a financing model
European governments are still searching for a more efficient way to partner with private sources of capital.
While banks continue to support large-scale transactions, especially those with strong sponsor backing, they are looking to improve their return on equity by offloading many assets. That is creating a space for institutional investors and US private credit funds to step in. These investors will provide an increasingly important home for assets.
Belgium remains one of the few countries where the PPP model is widely used
Meanwhile, Belgium remains one of the few countries where the public private partnership (PPP) model is widely used, especially to deliver road transport projects – a sector that has witnessed reduced activity across Europe.
In the UK, the much-heralded return of PPP looks set to disappoint, aside from the recently announced Neighbourhood Health Centre Programme. In June, the government published its ten-year National Infrastructure Strategy, setting out an objective to invest £725 billion over the next decade with the majority coming from the private sector.
Record financing of £68 billion in 2025, with around £31 billion coming from just 13 deals, and the fact this was issued at competitive prices, suggests there is no shortage of capital. Nonetheless, there is a sense that planning constraints, especially on the energy sector, will need to be loosened if the target is to be met.
The UK's NWF total investment now tops £7.5 billion, a quarter of its available capital
As for the country’s National Wealth Fund (NWF), it has invested £3.6 billion since its rebranding in October 2024. Its total investment now tops £7.5 billion, a quarter of its available capital, and its role has been evolving.
The NWF is now geared towards supporting early-stage equity investments and smaller projects that would otherwise struggle to raise outside finance, tackling investment challenges across a range of sectors. We expect to see more of this in 2026, which will be welcomed by private-sector developers.
